USAA Magazine Fall 2006

CHECK TOSEE IF YOURHOMEOWNERSINSURANCEPOLICY COVERSYOUR PERSONALCOMPUTERSFROM DAMAGE,INCLUDINGPOWERSURGES.After the unwrappingfrenzy this holidayseason, amid tornpaper and ribbons, you’lllikely find fliers urging you tobuy an extended service plancovering any future repairs.If you don’t see one, you or the gift-giver probablyfielded such an offer when shopping.It’s no fun to contemplate catastrophe befallinga gift given or received. Say you’re giving anew TV to elderly parents or a laptop to a collegeboundteen. You might want to prepay a fixedprice for future repairs so your loved ones, oryou, don’t face costly repairs or replacements.Plenty of consumers pay for that peaceof mind. The industry generatesan estimated $16 billion in annualpremiums for extended service plans,according to Warranty Week editorEric Arnum. But are they a good deal?Depends on what they cover and on whomyou ask.DIFFERING OPINIONSConsumer advocates tend to disapproveof all or almost all extended warranties.“I don’t think there’s anything good aboutthem that outweighs their costs,”says Robert Krughoff, presidentof Consumers’ CHECKBOOK, a nonprofitmagazine and Web site. The2007 Citizen Action Handbook publishedby the U.S. government’s Federal CitizenInformation Center warns, “Extended warrantiesor service contracts are rarely worthwhat you pay for them.”The problem, critics say, is that plans areoverpriced and usually not necessary. Manyproducts have long lives. Flat-panel TVs shouldlast an average of 20 years, according to thetechnology information site CNET.com, whiledryers and refrigerators last about 13 years,and microwave ovens, nine years, accordingto the National Associationof Home Builders.Most items that break do soshortly after purchase, while stillcovered by the manufacturer’swarranty that comes free with purchase. If youpay with a major credit card, some card issuerswill double the period of the manufacturer’swarranty; check terms and conditions of yourcard agreement to see if it offers this perk.Selling the plans leads to big profits, generatingmost or even all the annual net income ofsome large consumer electronics retail chains,while representing a small fraction of overallsales, according to BusinessWeek. That suggeststhat they are indeed richly priced.“Extended service plans are not accuratelyrepresented in the media,” counters Rob DiRocco,a vice president at N.E.W. Customer Service Cos.,one of the largest providers of the extendedwarranties sold by retailers. “Consumers, onthe other hand, appreciate the convenienceand peace of mind that extended service plansprovide, especially when there is a problemwith their product.” The plans offer valuableconvenience to consumers concerned about thepossible cost and hassle of getting a complexproduct repaired, he says. Extended serviceplans run for longer periods than manufacturers’warranties, up to several years. And theymay cover things, such as damagefrom power surges, that manufacturers’warranties do not.“Some plans also cover maintenancecosts,” Mr. DiRocco says.International travelers like extendedservice plans, he adds, because theycover products outside the United States,unlike most manufacturers’ warranties.WHAT TO CONSIDER1. Do you need it? Extended warranties onlykick in after manufacturers’ warranties expire —usually after the first months or years, duringwhich a product is most likely to break. That’sone reason extended plans are said to pay outas little as 20 percent of premiums collected,according to Norman Fong of shopping siteTechBargains.com.N.E.W. Customer Service says it covers 150million American consumers and handles claimsfrom 15 million a year. That suggests 90 percentdon’t use their plans every year. Mr. DiRocco saysthat’s not accurate, but he declined to providethis proprietary information.2. Are you getting the best price? Mr. Krughoffrecommends shopping around for an extendedwarranty just as you do the product, adding thePHOTOGRAPH BY XXXXXXXXXX18USAA MAGAZINE WINTER 2007 USAA.COM